US DOLLAR TO CANADIAN DOLLAR FORECAST: USD/CAD PRICE ACTION WHIPSAWS AROUND FED & BOC INTEREST RATE CUTS
- USD/CAD has gyrated around back-to-back interest rate cuts from the Federal Reserve and Bank of Canada this week
- Convergence between Fed and BOC rate cut expectations over the medium-term has potential to push spot USD/CAD price action toward 2017 highs
- Outlook for the US Dollar against the Canadian Dollar remains mired by high-impact jobs data due for release on Friday
The direction of USD/CAD has edged higher by more than 3% so far this year. Strength in the US Dollar relative to its Canadian Dollar counterpart since January can be broadly attributed to market impact from the ongoing coronavirus outbreak.
Spread of the novel coronavirus (COVID-19) over recent weeks has indirectly caused a selloff in oil prices and spurred demand for safe-haven currencies. Both of the aforementioned fundamental developments tend to be bullish for spot USD/CAD price action, but is there potential for the Greenback to keep climbing against the Loonie?
USD/CAD PRICE CHART: WEEKLY TIME FRAME (MARCH 2017 TO MARCH 2020)
USD/CAD pierced the upper barrier of its bullish flag consolidation pattern last week and now looks to back-test the previously standing trendline of resistance. After breaching this technical obstacle, spot USD/CAD prices might target resistance posed by the May 2019 next before eyeing the December 2018 and May 2017 swing highs.
Although, USD/CAD may remain anchored to confluence around the 1.34 handle, which is highlighted approximately by the 76.4% Fibonacci retracement level of the trading range etched out by this major currency pair since 2017.
| Change in | Longs | Shorts | OI |
| Daily | 30% | -6% | 3% |
| Weekly | 17% | 3% | 6% |
At the same time, USD/CAD is currently riding the top of its 2-standard deviation Bollinger Band ™ and could, statistically speaking, enable a mean-reversion back low. The Bollinger Band width looks like it is starting to expand, however, and has potential help USD/CAD extend recent upside.
USD/CAD PRICE CHART: DAILY TIME FRAME (NOVEMBER 2019 TO MARCH 2020)
A daily chart of USD/CAD illustrates the sharp rise in spot prices since early January. The healthy uptrend is underscored by the 9-day exponential moving average, which will look to continue providing short-term technical support going forward.
The 23.6% Fibonacci retracement of the year-to-date trading range recorded by USD/CAD seems to show potential of keeping spot prices bolstered as well.
On balance, spot USD/CAD price action is estimated to fluctuate between 1.3282-1.3506 over the next week, which is calculated using the 1-week implied volatility reading of 6.1% and a 68% statistical probability.
FEDERAL RESERVE & BANK OF CANADA INTEREST RATE CUT PROBABILITIES
Despite an emergency 50bps interest rate cut by the Fed on Tuesday, spot USD/CAD price action was little changed. The latest BOC decision announced earlier today followed suit with the Bank of Canada cutting rates by 0.5% as well, but the reaction in USD/CAD was more pronounced.
That said, the Canadian Dollar could continue coming under pressure relative to the US Dollar if interest rate traders start pricing a convergence between dovish expectations for the Fed and BOC. Spot USD/CAD would likely benefit if this scenario unfolds.
On that note, the economic calendar for Friday details high-impact jobs data will be released out of the US and Canada, which could send Fed and BOC interest rate cut expectations swinging in response.
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
